In a 2012 email six weeks before he gained Instagram, Facebook CEO Mark Zuckerberg wrote that one of his motivations for the acquisition was to “neutralize a potential competitor.”; The emails were revealed during today’s hearing before the House’s antitrust committee featuring four tech moguls: Tim Cook, Sundar Pichai, Jeff Bezos, and Zuckerberg. The emails were first reported by the Verge.
Facebook was one of the largest Internet social networks in 2012, but its dominant position was not as secure as it is today. There were many rival social networks, and Zuckerberg worried that his company would be caught flat by the switch to smartphones.
Neutralization of a potential competitor?
On the evening of February 27, 2012, Zuckerberg emailed Facebook Chief Financial Officer David Ebersman about the possibility of acquiring “mobile app companies like Instagram and Path that are building networks that are our own competitive. ” He’s worried that “if they grow on a large scale they could be very disruptive for us.”
In response the next morning, Ebersman urged Zuckerberg to make sure he had good reason to make an acquisition. He suggested three possible reasons for making a deal: “1) neutralize a potential competitor,” “2) acquire talent,” and “3) integrate their products with ours in order to improve our service.” Ebersman argued that the first reason was “a bad reason” because “someone else will immediately take their place.”
Zuckerberg responded within 20 minutes. “It’s a combination of (1) and (3),” he wrote. Then he explained his thought:
One thing that can make (1) more reasonable here is that there are network effects around social products and a finite number of different social mechanics to invent. Once someone wins at a specific mechanic, it’s hard for others to substitute them without doing something different. It’s possible for someone to beat Instagram by building something that is better to the point of getting network migration, but that’s harder as long as Instagram continues to work as a product. (3) is also a factor but in reality we already know the social dynamics of these companies and will still integrate them in the next 12-24 months.
Zuckerberg added that another way to look at procurement strategy is as a way of “buying time.” “Even if some new competitors start, buying Instagram, Path, Foursquare, etc. will now give us a year or more to integrate their dynamics before everyone can get back to their scale,” he argued. New products “don’t come as much traction” once Facebook replicated their social mechanics, Zuckerberg predicted.
Evidently, Zuckerberg quickly realized how bad this email could look if it eventually became public. Less than an hour later, he sent another email to Ebersman.
“I don’t want to understand that we’re going to be buying them to not let them compete with us in any way,” Zuck wrote. “Buying them gives us the people and the time to incorporate their innovations into our core products, which is how we do the integration instead of combining the products. I’m most excited about what companies they can do it together if we worked to build what I’ve invented into more people’s experiences. “
“Instagram could hurt us”
In an April email, Zuckerberg wrote that “Instagram can hurt us significantly without doing huge business.”
Days later, Facebook bought Instagram in a deal worth $ 1 billion. In an email exchange on the day of the acquisition, Zuckerberg and a Facebook engineer discussed the relative importance of Instagram and Google+, Google’s social network.
“I remember your internal post about how Instagram was our threat and not Google+,” Zuckerberg wrote. “You were basically right. One thing about startups is that although you can often get them.”
The agreement was lowered through a review by the Federal Trade Commission. Instagram was a small company with only 13 employees; it was probably not obvious to regulators to grow to become one of the Internet’s largest social networks.
Now the deal is getting more scrutiny. House Democrats highlighted the emails during Wednesday’s hearing as they grilled Zuckerberg about the transaction.
“I was clear that Instagram was a competitor in the mobile photo-sharing space,” Zuckerberg said during the hearing. “There were a lot of others at the time. They competed with an app like VSCO Cam and PicPlz and companies like Path. It was part of the overall connection space that we exist in.”